Five things we learned about the Anthem-Cigna merger fallout

A Delaware judge ruled Monday that neither Anthem nor Cigna can collect any damages in the wake of their failed attempt to merge. The 306-page opinion issued by the Delaware Chancery Court revealed details on why the two insurers decided to merge and how it all fell apart. Here are five things we learned about the failed Anthem-Cigna transaction and the power struggle between their CEOs.

1. Merger talks started in 2012

Anthem and Cigna first began mulling a transaction in August 2012—three years before a deal was struck, according to the court opinion. Cigna first proposed a merger in which Anthem’s stockholders would own 55% of the new combined organization’s equity. Seats on the new company’s board would be split equally between the companies, and Cigna would lead the organization. Anthem viewed the deal as “opportunistic” and backed out.

In early 2014, Cigna CEO David Cordani reached out to Joseph Swedish, who had become Anthem’s CEO the year before. Both felt that the health insurance sector was highly consolidated and the next major transaction would be the last one antitrust regulators would approve. They recognized that Blue Cross and Blue Shield Association rules requiring member companies to derive at least two-thirds of revenue from Blues-branded plans presented an obstacle. Anthem, a Blues affiliate, again put the talks on hold in early 2015.

Cigna then made a bid for Humana, which rejected the offer but said it was initiating a limited sale process. The prospect of being left without a merger partner brought Anthem to the table. After tense negotiations, the two companies would finally strike a deal.

2. Cigna’s CEO never liked the deal

Cordani envisioned a deal in which Anthem would nominally be the acquirer, but Cigna would lead the newly combined company. His No. 1 objective in negotiations was to secure the role of CEO for himself. He also wanted a “meaningful premium” for Cigna shareholders. Cordani later testified that Anthem wanted him as CEO, which was contrary to the factual record, according to the opinion.

Cigna secured a premium 38% over the insurer’s closing price but not the CEO role. Former Anthem stockholders would own two-thirds of the new company’s equity, and former Cigna stockholders would own one-third. Cordani would be president and chief operating officer and serve as a director; Anthem would have nine seats on the new company’s board while Cigna would get five.

In response to a letter of congratulations from Cigna’s chairman, Cordani wrote, “Brain knows yes. Heart is heavy,” according to the opinion. In other correspondence, he wrote that while he knew the deal was “correct,” he was “struggling to accept it all” and that his “soul (was) still unsettled.”

3. The CEO power struggle

Anthem’s then-CEO Joseph Swedish and Cordani were at odds from the start. “Swedish was a traditional CEO who valued hierarchy. Cordani was a charismatic visionary who inspired deep personal loyalty. To Swedish, Cigna seemed like a ‘cult associated with (Cordani’s) ego drive,’ ” the opinion states.

The relationship between the CEOs deteriorated during negotiations. Anthem hired a consultant to define the roles for Swedish and Cordani. The consultant’s first draft had executives reporting to Swedish and gave him responsibility for the new company’s strategy. Cordani would be responsible for all operations and lines of business. Cordani objected to Swedish controlling the strategy.

Swedish and Cordani butted heads over integration planning, which would determine how the separate companies would operate as one and have major implications for regulatory approval. They bickered about hiring consultants. They also fought when Swedish began conducting interviews for the combined company’s future leadership team. Swedish responded by narrowing Cordani’s duties in hopes he would leave voluntarily, according to the opinion.

Swedish and Cordani argued in a series of back-and-forth letters. Swedish blamed Cigna for a “very ineffective and slow paced integration process.” Cordani said Swedish’s leadership team interviews were “highly disruptive” and suggested separating the integration planning and leadership selection processes. Swedish said he was “becoming deaf to the rhetoric” and accused Cordani and his team of saying one thing and doing another.

4. Project Alpha

In January 2016, Swedish essentially demoted Cordani. Swedish said he envisioned Cordani serving as the head of only the new company’s commercial business. He noted that Cordani could leave within two years with full severance, and that Anthem needed to create multiple successor options. Cordani left the room.

Cigna viewed the demotion as a hostile act. Cigna’s leadership team put together a plan, code-named “Project Alpha,” to restore Cordani’s role. As part of that plan, during a meeting of the combined company’s board member designees in February, Cigna designees expressed concern about Cordani’s reduced role and timing of the leadership selection. Anthem designees empathized, but Cordani didn’t get his way.

To gain leverage over the structure of the combined company, Cigna withdrew from integration planning except for “day one” activities. Eventually, in April 2016, Anthem sent a letter restoring Cordani’s responsibilities for all of the new company’s operating businesses. Cigna rejected the olive branch, according to the opinion.

5. The covert communications campaign

Cordani hired law firm Wachtell Lipton Rosen & Katz and communications and consulting firm Teneo, which had worked together to represent another client that wanted to avoid closing a merger. According to the opinion, Wachtell Lipton “helped Cigna to escape from the deal” with Anthem. Cigna executives kept Wachtell Lipton’s role secret by referring to the firm as the “tea company,” which alluded to the Lipton tea brand, the opinion states, and Cigna allegedly channeled Teneo documents through the law firm to create privilege.

Teneo spoke with reporters on background to push anti-merger messages and play up the strength of a “Sovereign Cigna,” according to the opinion. Teneo also leaked to the Wall Street Journal the angry letters that Swedish and Cordani had sent back and forth months earlier, it said. Teneo did so because Cigna believed Anthem had been leaking information. Nicole Jones, Cigna’s general counsel, had sent the dispute letters to Teneo and later pretended to conduct an investigation into the leak, according to the opinion.

Even as Anthem and Cigna met with the Justice Department, Cigna and Teneo simultaneously prepared to change the narrative if DOJ opposed the merger. Teneo would contact the media on background to attack Anthem and Swedish and praise Cigna as a stand-alone company. When DOJ filed a lawsuit to block the deal, “Teneo waged a covert communications campaign against the merger.”

“Through Teneo, Cigna carried out a campaign that depicted the merger as anticompetitive, anti-consumer, and anti-innovation, which were the very grounds on which DOJ was seeking to block it,” the opinion states.


Tags: covid-19, pandemic

Thanks! You've already liked this